The International Monetary Fund (IMF) on Tuesday in its October 2016 World Economic Outlook said global economic growth will remain subdued this year following a slowdown in the United States and Britain’s vote to leave the European Union.
It also forecast that Nigeria’s economy will be out of recession in 2017, growing by 0.6 percent that year.
It noted that the current economic recession will outlast 2016, with a gross domestic product (GDP) contraction of 1.7 percent.
“Sub-Saharan Africa’s largest economies continue to struggle with lower commodity revenues, weighing on growth in the region,” IMF said.
“Nigeria’s economy is forecast to shrink 1.7 percent in 2016, and South Africa’s will barely expand. By contrast, several of the region’s non resource exporters, including Côte d’Ivoire, Ethiopia, Kenya, and Senegal, are expected to continue to grow at a robust pace of more than 5 percent this year.”
“Taken as a whole, the world economy has moved sideways,” said IMF chief economist and economic counsellor, Maurice Obstfeld. “We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world,” he said.
The report highlighted the precarious nature of the recovery eight years after the global financial crisis. It raised the specter that persistent stagnation, particularly in advanced economies, could further fuel populist calls for restrictions on trade and immigration. Obstfeld said such restrictions would hamper productivity, growth, and innovation.
“It is vitally important to defend the prospects for increasing trade integration,” Obstfeld, said. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”
To support growth in the near term, the central banks in advanced economies should maintain easy monetary policies, the IMF said. But monetary policy alone won’t restore vigor to economies dogged by slowing productivity growth and aging populations, according to the new report. Where possible, governments should spend more on education, technology, and infrastructure to expand productive capacity while taking steps to alleviate inequality. Many countries also need to counteract waning potential growth through structural reforms to boost labour force participation, better match skills to jobs, and reduce barriers to market entry.
The world economy will expand 3.1 percent this year, the IMF said, unchanged from its July projection. Next year, growth will increase slightly to 3.4 percent on the back of recoveries in major emerging market nations, including Russia and Brazil.
Advanced economies will expand just 1.6 percent in 2016, less than last year’s 2.1 percent pace and down from the July forecast of 1.8 percent.
The IMF marked down its forecast for the United States this year to 1.6 percent, from 2.2 percent in July, following a disappointing first half caused by weak business investment and diminishing pace of stockpiles of goods. U.S. growth is likely to pick up to 2.2 percent next year as the drag from lower energy prices and dollar strength fades.
Further increases in the Federal Reserve’s policy rate “should be gradual and tied to clear signs that wages and prices are firming durably,” the IMF said.
Uncertainty following the “Brexit” referendum in June will take a toll on the confidence of investors. U.K. growth is predicted to slow to 1.8 percent this year and to 1.1 percent in 2017, down from 2.2 percent last year.
The euro area will expand 1.7 percent this year and 1.5 percent next year, compared with 2 percent growth in 2015.
“The European Central Bank should maintain its current appropriately accommodative stance,” the IMF said. “Additional easing through expanded asset purchases may be needed if inflation fails to pick up.”
Growth in Japan, the world’s number 3 economy, is expected to remain subdued at 0.5 percent this year and 0.6 percent in 2017. In the near term, government spending and easy monetary policy will support growth; in the medium term, Japan’s economy will be hampered by a shrinking population.
In emerging market and developing economies, growth will accelerate for the first time in six years, to 4.2 percent, slightly higher than the July forecast of 4.1 percent. Next year, emerging economies are expected to grow 4.6 percent.
However, prospects differ sharply across countries and regions.
In China, policymakers will continue to shift the economy away from its reliance on investment and industry toward consumption and services, a policy that is expected to slow growth in the short term while building the foundations for a more sustainable long-term expansion. Still, China’s government should take steps to rein in credit that is “increasing at a dangerous pace’’ and cut off support to unviable state-owned enterprises, “accepting the associated slower GDP growth,” the IMF said.